China’s exports contracting 6.6% yoy in March, on top of an 18% fall the previous month, and GDP slowing—to 7.4% in the March quarter—to its lowest since the third quarter of 2012 can both be seen as signs of the central leadership successfully steering the economy off its steroidal growth to a more stable path, where consumption spending played a greater role. Indeed, apart from reducing its dependence on export-led growth, one of the other avowed aims of the central leadership was to lower the dependence on investment-led growth—this too, the latest data show, has fallen dramatically. At 17.6% in the first three months of the year, China’s investment growth is down to the slowest pace since the early 2000s. If growth is still at 7.4% despite this, it is possible to argue that China’s central leadership does in fact have a lot of levers at its disposal. Indeed, China’s leadership is also serious about cracking down on the shadow banking system and, data released a day before the GDP data, showed the size of ‘total social financing’ fell by around 10% in the March quarter.

The problem, however, is that getting China down to a lower rate of growth is a bit like a contained explosion—if all goes to plan, there are no casualties, but what if it doesn’t? Indeed, the government has already come out with a stimulus package to ensure growth doesn’t fall off too suddenly. China’s biggest problem remains, not just the size of the shadow banking system, but where the money raised has been invested in. A BNP Paribas analysis points out China’s real estate investment is around 15% of GDP right now, up from around 10% at the time of the Lehman crisis. BNP Paribas also points out that the property overhang on China is quite frightening. The market value of the property under construction in China is around 155% of GDP, up from a more reasonable 65% in the five years to 2008. So, as the economy slows, and there are fewer takers for property, either as rental or in the form of outright purchases, the consequences of the property bubble bursting get that much more difficult to handle. According to China Confidential, a research service owned by the Financial Times, property sales fell as much as 23% during the first six days of April, on top of a declining trend in the last